In Part 1, we saw what DAOs are and how they help instill a sense of transparency and accountability. They also help create a secure environment to run organizational operations.
In this part, we’ll learn the growing importance of DAOs, how technology has shaped DAOs, and what does future hold for DAOs. So, let’s get started!
How Technology Plays a Vital Role in Building DAOs?
Picture a futuristic world where communities can unite and make decisions in a decentralized and transparent manner. That is the world of DAOs – Decentralized Autonomous Organizations. With the help of blockchain and smart contracts, DAOs have revolutionized how we approach governance, making it more accessible and democratic than ever before.
No more stuffy boardrooms or closed-door meetings – DAOs bring decision-making to the masses, allowing anyone with an internet connection to participate and have their voice heard—all thanks to blockchain.
DAOs can also facilitate creating and managing digital assets, provide project funding, and even automate certain tasks through smart contracts.
Furthermore, you can use various technologies and platforms to launch a DAO. Here are a few of them:
- DAO Creation Software
You can use the following platforms for DAO creation
- DAOhaus
- Collab.Land
- Aragon
You will also need a skilled DAO development company to create smart contracts.
- DAO Tools
• To make a DAO functional, you will need tools for:
• You will also need the right tools to make your DAO functional. Some of them are:
• Treasury management – Gnosis Safe
• DAO Fundraising – Mirror, Juicebox
• DAO Voting System – Snapshot
• A DAO development company would come in handy here as well. It will have the tools and technical know-how to help you build a DAO.
How are DAOs Changing the Game
DAO gives more autonomy on where, when, and how we work.
Confused? Let me explain!
With the rise of DAOs, we can decide how and where to work instead of working a 40-hour work week for one employer. We could contribute to several DAOs and work a few hours a week. This approach is getting popular among early adopters as more people are jumping on the bandwagon of becoming creators and pursuing their passion of becoming vloggers, bloggers, and podcasters.
The rise in the usage of DAOs gives us a glimpse of what a creator-run economy would look like, and creators can earn through multiple sources like coaching, consulting, and content monetization on various platforms such as YouTube, SubStack, and Patreon.
• More Decision-Making Power
DAO voting system is a hot topic among the Web3 community. DAO contributors can use its native tokens to vote on key decisions. Snapshot serves as a fitting example of the DAO voting system.
• Work From Anywhere
While traditional workplaces demand you to go to the office, DAOs neither care when you work, where you work, nor what you look they when you are working. Many people are recognized only by their NFT profile picture. This seems great, especially in the post-pandemic era, where remote work is becoming increasingly mainstream.
In a typical DAO setup, DAO contributors can work from anywhere. So, instead of working in a 4*4 cubicle and taking two to four weeks off, DAO contributors can work from the pristine beaches of the Bahamas! They can chill with their teams virtually on The Sandbox physically meet their colleagues and clients for conferences and retreats for a few weeks a year.
Netflix co-founder Marc Randolph said on the Future Squared podcast that no one cares about your appearance in a workplace where you are evaluated solely based on your work.
Some might argue that DAOs, like, gig-workers-run-company, might not safeguard the rights and interests of those contributing to them. However, DAOs like Opolis are addressing it by offering their contractors and contributors health insurance and 401K retirement plans. And we are sure that more DAOs will follow the pioneer.
Hence, it goes without saying that DAOs promise a meritocratic work culture with a fair system of recognition and rewards.
How will it affect traditional governance models that have existed since immemorial? Let us learn!
The Impact of DAO Development Services on Traditional Governance Models
Decentralized Autonomous Organizations (DAOs) are organizations run by computer programs called smart contracts. These smart contracts are stored on a blockchain, which makes them immutable and transparent. DAOs have the potential to disrupt traditional governance models in several ways.
Since DAOs are run by smart contracts, not humans, they are immutable and transparent. Here are a few ways DAOs are disrupting the traditional governance models and creating new forms of decentralized, transparent, and democratic decision-making.
1. Flat Hierarchal Structure
DAOs can replace traditional hierarchical structures with flat, decentralized systems. This leads to an effective decision-making as the power of making decisions is distributed among all organization members as opposed to getting concentrated in the hands of a few individuals at the top. A flat hierarchal structure also ensures that the decision makers are accountable for their deeds, unlike the decision makers in the centralized organizations, which are all mighty.
2. Increased Level of Participation
DAOs can increase the level of participation and engagement among members. DAOs enable direct democracy, where members can vote on decisions themselves. This could lead to more inclusive decision-making and greater buy-in from members. Whereas, the traditional governance models often rely on representative democracy, where members elect representatives to make decisions on their behalf.
3. Trust and Security
DAOs can increase trust and security in the governance process. DAOs rely on trust in code, which is transparent and auditable. This could lead to greater confidence in the governance process and reduce the risk of corruption or abuse of power. On the other hand, traditional governance models rely on trust in individuals and institutions to make decisions and enforce rules, which could lead to a misuse of power by the governing institution and a lack of confidence in individuals.
The Future Implications of DAO
The future of DAOs seems bright and far-reaching. DAOs can impact various levels of society and governance. While DAOs come with challenges and risks, they offer an exciting opportunity for governments and businesses to better their operations.
DAOs reduce the power of a few individuals and centralized institutions and empower communities and individuals to make decisions and drive change through a democratic process.
Moreover, DAOs democratize access to investment and funding by enabling anyone to participate in investment opportunities and new projects. This way, they allow more diverse investment opportunities.
The best part is DAOs do not burn a hole in your pocket!! Since DAOs are built on blockchain technology, they can reduce transaction costs and increase transaction speed, potentially making business processes more efficient. For example, supply chain management could be made more efficient by using DAOs to track and manage transactions in a transparent and auditable way.
And just like remote work, DAOs are also at the helm of shaping the future of work. DAOs could change how work is done and contributors compensated by enabling more flexible and decentralized work arrangements. For example, DAOs could be used to coordinate and pay freelancers and remote workers in a more transparent and equitable way.
Hence, DAOs have more potential for revolutionizing governance and financial institutes than it meets the eye. And governments are already welcoming it with open arms. The state’s legislature recently passed Act HB 357, also known as the Utah Decentralized Autonomous Organizations Act, which legally recognizes DAOs and offers them limited liabilities.
This makes Utah the first state to embrace DAO. With Utah allowing blockchain enthusiasts to establish more DAO, the state’s tax revenue would likely soar, setting a precedent for other states to follow suit. In the coming years, we can witness more states passing DAO-friendly laws. And who knows, this could lead to a decentralized, community-driven government where everyone has an equal say in decision-making.
Comparison of traditional business and governance models and DAOs
| Centralized Organizations | Decentral Autonomous Organizations DAOs | |
| Governance Structure | Hierarchical structure with a clear chain of command | No central authority or decision-makers |
| Power Structure | Decision-making power lies in the hands of a few individuals | Democratic decision-making process, where token holders vote on proposals. |
| Transparency | Lacks transparency as their financial and operational information is not always available | Highly transparent, as all transactions and decisions are recorded on the blockchain, which anyone can view |
| Trust | require a significant amount of trust in the people running them | Only require trust in the code, which is open source. |
| Accessibility | Requires a lot of capital to invest, limiting access to a few individuals. | Super accessible as they allow anyone internet connection to participate and invest. |
Challenges and Limitations of DAOs
DAOs are taking the world by storm, with more than 216 DAOs already in the market boasting a whopping $10 billion in assets under management and over 2 million members. And it is not just small-time investors jumping on board – big names like Mark Cuban, Peter Thiel, and Naval Ravikant are investing in these decentralized organizations.
But not everything is hunky-dory about DAOs. They come with their set of challenges and limitations. And you must know the challenges inside out if you plan to get into DAOs with a long-term approach.
What are these challenges? Let’s find out!
• Regulatory Challenges
Regulatory challenges are one of the biggest obstacles DAOs face. The regulatory landscape for decentralized organizations is still evolving, and many countries do not yet have clear laws or guidelines for DAOs. This creates uncertainty and risk for organizations looking to create or participate in a DAO.
For example, in the United States, the Securities and Exchange Commission (SEC) has issued guidance stating that DAO tokens may be considered securities and subject to securities regulations. This has created uncertainty around the legality of DAOs that issue tokens to raise funds and may deter investors from participating in these organizations. Oh no! ☹
• Social and Cultural Barriers
Social and cultural barriers are key challenges for DAOs. Many people need to become more familiar with decentralized decision-making and may resist the idea of giving up centralized control. Additionally, DAOs may face cultural barriers in certain regions or industries with deeply ingrained hierarchical decision-making structures.
For example, respect for authority and seniority is highly valued in some cultures, and convincing individuals to participate in a decentralized decision-making process may be difficult. Additionally, in industries like finance, centralized decision-making, and control is deeply ingrained, and it may be difficult to convince traditional players to adopt a more decentralized model.
• Security Risks and Challenges
Another major challenge for DAOs is Security risks and challenges. The smart contracts that govern many DAOs can be vulnerable to attacks. If a malicious actor gains control of a DAO’s smart contract, they could potentially steal funds or manipulate decision-making.
For example, in 2016, The DAO, one of the first and most high-profile DAOs, was hacked, resulting in over $50 million worth of cryptocurrency theft. The hack was possible due to a flaw in the DAO’s smart contract code. It also sent the message to the blockchain community that Security of DAO are of utmost importance.
• Not-so-developed Infrastructure
Since DAOs are a recent affair, they need to have the well-developed infrastructure that centralized governance systems are already thriving on. DAOs are in the nascent stage of building an efficient infrastructure for reporting, treasury management, governance, payroll, communication, identity management, etc.
Without proper infrastructure to manage these duties, DAOs would become a fad and eventually fail to gain traction. However, the positive response to DAOs worldwide has catapulted to enhanced innovation and collaboration in the Web3 space, which will solve this issue.
• Not-so-secure Blockchain Contracts
Smart contracts may be the backbone of blockchain technology, but they are fallible. In fact, vulnerabilities in these contracts have resulted in millions of dollars being drained from various protocols, including the infamous $120 million hack of BadgerDAO.
And when disagreements arise within a decentralized autonomous organization (DAO), the result can be even more chaotic.
Take the Ethereum/Ethereum Classic split, for example. It was caused by differing responses to The DAO attack or the Bitcoin/Bitcoin Cash hardfork, which resulted from a disagreement over block sizes.
Even the idea of “code is law” can be challenged by DAOs. For instance, JUNO Network voted to revoke tokens from a whale. These situations break the very foundation of what attracted people to the web3 space in the first place, i.e., transparency, accountability, and immutability.
But on the other hand, these challenges may also help scale projects beyond the limits of immutability, as seen in the success of the Ethereum network.
DAOs are evolving. And just like every evolving technology, DAOs have complex issues with no easy answers. However, it will be interesting to see how Web3 enthusiasts solve these challenges and make DAOs investment friendly.
With that being said, investing or starting a DAO could be daunting, and you might need an expert to help you take the plunge. Time for the question of the century: How do you ensure hiring the right DAO development company, especially when starting out? Don’t worry! We will help you figure it out.
How to Choose the Right DAO Development Company?
Choosing the right DAO development company can be a crucial step in building a successful decentralized autonomous organization. Here are some key factors to consider when making your decision:
Experience : Look for a company that has extensive experience in developing DAOs. A company with a strong portfolio of previous DAO projects can indicate that they have the necessary knowledge and expertise to create a successful DAO for your business.
Expertise : Make sure that the company you choose has the expertise in the specific technologies and programming languages required for your DAO. For example, Solidity is the primary language used for developing smart contracts on the Ethereum network, so you will want to ensure the company has expertise in this area.
Customization : A one-size-fits-all approach may not be suitable for every project. Look for a company that can provide customized solutions tailored to your needs. They should be able to offer flexible options that align with your business goals and objectives.
Communication : Communication is crucial in any development project, and DAOs are no exception. Choose a company that has clear communication channels and is responsive to your inquiries and concerns. They should be able to provide regular updates and progress reports throughout the development process.
Security : DAOs deal with sensitive financial transactions and data. Look for a company with a strong track record of implementing robust security measures. They should be able to explain their security protocols and measures to ensure the safety and security of your DAO.
Cost : Cost is a significant factor in any business decision. Consider the company’s pricing structure, payment terms, and any additional fees that may apply.
Reputation : The company’s reputation in the industry can indicate its reliability and professionalism. Look for reviews, testimonials, and ratings from previous clients to understand their record of accomplishment. You can also check online forums like GoodFirms, G2, Capettera to see what others say about the company.
By carefully considering these factors, you can make an informed decision and choose the right DAO development company for your project.
And, if finding the right DAO development company looks taxing to you, you can contact MobifinX. We have been in the blockchain industry for over 10 years and are OWASP and SOC2 certified.
The Way Forward
Every technology innovation is a double-edged sword. Meaning all major inventions that humans have brought come with their set of pros and cons. And blockchain technology is no exception.
DAO, or decentralized autonomous organizations, are changing how people govern themselves and interact with financial institutions. They are spearheading the decentralized finance revolution.
However, DAOs are facing security, regulatory and technological challenges. Some of the most prominent DAOs came tumbling down in recent years because of these issues. It only signals that DAOs are not flawless.
In fact, they are far from it.
On the brim of the COVID pandemic in 2020, MakerDAO faced a huge setback, which the blockchain enthusiasts call “Black Friday.” The price of ETH fell 43%, leaving 4.5 million DAI (the DAO’s native token). The worst part was it wasn’t supported by any collateral. Till the time they realized it was already too late. Users lost millions of dollars which jeopardized their financial situation. This led to a chain reaction of events. Ethereum network got overwhelmed. Gas prices increased significantly and caused the price oracle to fail. As a result, the price of ETH considerably decreased, leading to collateral debt positions being liquidated immediately. This enabled some liquidators to get $8 million worth of ETH for free while leaving others with a 100% capital loss.
However, not all is bad about DAOs. The latest trends show that DAOs are becoming a prominent tool for decentralized decision-making and collaboration.
From managing decentralized protocols to supporting social impact initiatives, the possibilities are endless for DAOs. With forward-thinking leadership, commitment to transparency and inclusivity and the right DAO development team in hand, DAOs are poised to transform the world in ways we can only begin to imagine.
Moreover, DAOs are touted to give a more holistic future where people from all walks of life can build a community and positively impact the world. With DAOs setting up alternate governance and finance standards, they can become a positive force to reckon with.
So, join the movement and be part of shaping the future of decentralized organizations. The sky is the limit, and so is the potential of DAOs!
FAQs
What is a DAO?
A DAO is a Decentralized Autonomous Organization that uses smart contracts and code governance for operations to help a community through a brand-new system or operations.
How Much Does It Cost to Start a DAO?
The initial filing fee to register a DAO as an LLC is $100, but the cost can increase depending on the level of expertise needed, such a DAO development company. It is possible to attract investors first and start the development process later with their contributions.
What Are Some Examples of DAOs?
Uniswap, American CryptoFed DAO, BitDAO, and LexDAO are a few popular DAOs.
What is a DAO in NFT?
A DAO in the Blockchain world refers to Decentralized Autonomous Organizations that rely on Blockchain for funding and running.
Is Ethereum a DAO?
While Ethereum has several features of a Decentralized Autonomous Organization, it is not one since it has an off-chain administration rather than an on-chain governance.
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